Markets
Most people think of alternatives as either a hedge in their portfolio against traditional market swings, or a big return generator with more risk, but REITs can be a great income generator. Dynex Captial is a great REIT with a 10.38% dividend as of April, and Citadel is a huge holder in the company. Gladstone Commercial real estate has a strong 6.71% dividend and never misses its distribution so it’s ultra-reliable. Finally, LTC Properties has a similar 6.31% dividend but has strong hedge fund love. Their recent acquisition of LuxeRehab is a signal of their strength and has a good track record with tenants.
Finsum: REITs have lots of dividend options and are a good income alternative for those seeking a solution in this market, however it does have risk.
The majority of financial advisors have one concern at the top of their priority list: inflation. As rates hit unprecedented levels in the modern Fed era, these numbers look more like the seventies than the 2020s. This has caused a mass exodus and outflows from traditional fixed income products having investors and advisors looking elsewhere to get income. Dividend strategies, commodities, and other alternatives are seeing huge inflows for clients who want to maintain an income position. Some Advisors are getting more intricate and using option overlay strategies to mitigate inflation. Tom Lydon of ETF Trends expects bond ETF outflows to continue as advisors are steering clients away from them.
Finsum: Model portfolios specifically geared toward inflation are a nice alternative for investors at the moment.
Inflation may be peaking, or at least that is what Treasury bulls are thinking. A rally started at the 20-year note and worked its way to shorter term rates this week: the 30-year yield fell 13 basis points and the ten-year yield fell by 12 basis points. Declining yields were driven by investors flooding into these treasury markets. Still, investors are pricing in a half-point rate increase by the Fed in the next two meetings with an almost 100% chance of reading the tea leaves in the options markets. The rally was really suppressed by Bank of America’s Forecast which said inflation peaked in March and will be on the decline. Similar patterns took place on the long end of the government bond market in the Euro areas as well with Germany and the U.K. seeing their yields fall.
Finsum: The flood in the TIPS market suggests that bond investors still see some persistent inflation in the near term.
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The most recent week of April saw a mass exodus in the global bond market as investors were fleeing in concerns of economic growth. Based on a report from Refinitiv Lipper investors dropped $14.5 billion in bond investment, over ten times the losses from the previous week. Ten year treasury rose sharply to a near three year high, which sent bond prices falling. While inflation is rampant, March actually saw a little bit of relief in core prices as inflation was mainly driven by food and energy. One area of bond funds that hasn’t seen investors scared off is inflation protected funds which are on their seventh straight week of gains and inflows. More concerning than just the tightening cycle is the growth that could result in overtightening which could send the economy reeling.
Finsum: This could be the bottom of the bond market, investors should prepare for a little bit of a rally if supply chains free up.
It's never too early to begin thinking about tax-loss harvesting and there is a ripe situation in the bond market. The yield curve has been on the rise due to Fed tightening and inflation. Rising yields mean lower bond prices and ETF owners have taken a bath. Selling off those funds right now could give you a tax advantage later this year. However, investors should get out of the fixed income route altogether. Markets are beginning to show signs of a recession or straight volatility so replacing your bond ETF with another fixed-income ETF could help in the case of a recession. Or if bond prices begin to take off it's a good option to have some skin in the game.
Finsum: The wash rule makes harvesting losses in equity markets a bit difficult, but the plethora of bond funds and options gives investors better ability to harvest losses now.
Recent events have dramatically shifted the balance of supply and demand within the oil market, driving prices higher. Will this trend continue?
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